Worthington Industries, Inc. Business Information, Profile, and History

Company Perspectives:

Earnings: The first corporate goal for Worthington Industries is to earn money for its shareholders and increase the value of their investment.... Our Golden Rule: We treat our customers, employees, investors, and suppliers as we would like to be treated. People: We are dedicated to the belief that people are our most important asset.... Customers: Without the customer and his need for our products and services we have nothing. We will exert every effort to see that the customer's quality and service requirements are met.

History of Worthington Industries, Inc.

Worthington Industries, Inc., is the leading intermediate processor of flat rolled steel in North America, processing more than three million tons of steel per year to the precise specifications of 1,700 customers in the auto, appliance, office equipment, and other industries. Its subsidiary Worthington Cylinders is the largest manufacturer of pressure cylinders for industrial, commercial, and consumer markets, including refrigerant cylinders, helium balloon kits, and small high-pressure cylinders for medical applications. Its subsidiary Dietrich Industries is the nation's largest producer of metal framing products for building industries, and subsidiary Gerstenslager Company is the leading independent supplier of replacement automotive body panels. Worthington is also a large producer of molded plastic parts for the automotive industry and other customers. The company employs 12,000 people at 62 plants in 22 states and five foreign countries.

John McConnell Enters the Steel Business

Worthington's development largely reflects the determination, entrepreneurial skills, and exceptional management philosophy of founder and chairman John H. McConnell. Maintaining the company's golden rule--"we treat our customers, employees, investors, and suppliers as we would like to be treated"--McConnell built up a highly motivated, well-rewarded, and highly productive work force.

Born in 1923 in New Manchester, West Virginia, the son of a steel worker, John H. McConnell went to work in the Weirton Steel Company mills when he graduated from high school in 1941. After three years of World War II Navy service in the Pacific, he attended Michigan State University under the GI Bill. Upon graduating in 1949, he returned to Weirton, this time in the sales department. Later he accepted a position at Shenango Steel, an independent company in Farrell, Pennsylvania, and in 1954 moved to Columbus, Ohio.

During this time, McConnell noticed that the major steel producers were busy building bigger mills and concentrating on large tonnage orders, and that interest in filling specialized orders was waning. Observing a growing need for custom steel processing services, he moved into this promising niche. In early 1955, McConnell set up business with a desk and phone in his basement in the Columbus suburb of Worthington, Ohio. Even before incorporation, he had landed an order from a thermometer company for a load of steel, which he could obtain from his old employer Weirton Steel for $1,800. McConnell had $1,200 cash on hand and figured Weirton would offer the customary 30-day payment terms. However, Weirton refused to offer credit to his new venture, and he had to rush to his bank for a $600 loan on his 1952 Oldsmobile to close the deal.

By June 1955, The Worthington Steel Company was incorporated. It ended its first year with five employees, $350,000 in sales, and a $14,000 profit. The company had already advanced from mere brokerage to rudimentary processing in rented quarters, with a slitting machine to cut the steel coils into specified widths. Four years later it moved into its first, 16,000 square-foot plant in Columbus. This was the forerunner of a complex that by the early 1990s encompassed 30 manufacturing facilities in 11 states and Canada.

From this simple start, Worthington rapidly expanded its capabilities so that it could, in McConnell's words, "do nearly everything with steel except actually melt it to prepare it for the customer's use." This included processing to the exact gauge, width, length, and shape, as well as providing the precise finish, temper (degree of hardness), and other characteristics desired by the customer. Thus, McConnell stated, "Worthington occupies a unique niche between the integrated mills, which concentrate on large, standard orders, and the metal service centers, which generally have limited processing capabilities."

Diversifying in the 1970s

The company changed its name from Worthington Steel to Worthington Industries in 1971 to mark its first diversification step: the purchase of the small, unprofitable pressure cylinder business of Lennox Industries. This operation became profitable the first year under the Worthington banner, and, before the decade was over, Worthington had become the leader in low pressure cylinders, such as propane tanks for barbecue grills.

Through its cylinder business, Worthington later established a Canadian foothold in 1988 with the acquisition of Metal Flo Corp. Canada Ltd., in Guelph, Ontario, which the company renamed Worthington Cylinders of Canada.

Another diversification step was the 1978 acquisition of U-Brand Corporation which made malleable iron, plastic, and steel pipe fittings, sold through hardware and plumbing supply stores. While U-Brand generally showed moderate profits, Worthington eventually came to regard the U-Brand product lines and marketing approach as too unlike its other lines, and sold the unit to Mueller Brass. The following year Worthington purchased Advanced Coating Technology, which specialized in architectural reflective glass, a process that involved applying a steel coating to glass. As with U-Brand, Worthington later sold this operation.

More significant was the company's 1980 merger with Buckeye International, Inc., which allowed steel processor Worthington to enter into what would become its two other major business segments: plastic and metal custom products and steel castings. Molded plastic products, sold mostly to automakers, included items ranging from air conditioning louvers to dashboard assemblies, but also had applications in cellular phones, hand tools, appliances, and a wide variety of other products. Precision metal parts, similarly marketed primarily to automakers, included components of antilock brakes, power steering, and transmissions.

The primary attraction for Worthington, however, was Buckeye's position as one of the largest producers of steel castings. Worthington maintained the Buckeye name for the castings division of the business, which had applications in the production of couplers for freight cars and the increasingly profitable undercarriages for rapid transit cars.

Besides Buckeye, two 1980 acquisitions added further specialized skills to the steel castings division, Capital Die, Tool and Machine Company and I. H. Schlezinger & Sons. Capital Die designed and built specialized machinery in its tool and die plant, while marketing its services to outside customers. I. H. Schlezinger was a processor of recyclable metals.

In 1984 Worthington acquired National Rolling Mills of Malvern, Pennsylvania, which made the steel grids used in suspended ceiling systems, this business was later transferred to a joint venture with floor and ceiling products leader Armstrong World Industries, forming the acronym "WAVE" for Worthington Armstrong Venture.

Worthington started on the joint venture track in 1986 when it teamed with U.S. Steel to form Worthington Specialty Processing in Jackson, Michigan, already the site of a Worthington steel processing plant. This operation processed wide sheet steel for such uses as outer door panels in cars and appliances. Worthington entered several other joint ventures in the late 1980s. It teamed with two Japanese companies--Nissen Chemical and Sumitomo--in 1988 to form London Industries, based in London, Ohio, which made molded plastic parts for Honda and a number of other foreign companies with U.S. production facilities.

The 1990s and Beyond

A source of major growth for the company was in cylinders and other equipment used to recover and recycle refrigeration gases. By federal law, these chemical refrigerants were required to be reclaimed during repair or replacement of air conditioning and refrigeration systems. Other promising new lines included cylinder kits for helium party balloons as well as compressed air tanks. A plant was opened in Jefferson, Ohio, in 1991 that extended the company's cylinder product line to large cylinders that could store fuel for homes situated away from gas lines. The acquisition in early 1992 of Alabama-based North American Cylinders moved Worthington into acetylene cylinders (important in welding) and high-pressure tanks.

In September 1993 Worthington announced plans to build a facility in France to manufacture steel tracks for acoustic ceiling tiles as part of the Worthington Armstrong Venture. Noting that partnering is an effective method of lowering the risk of entering foreign markets, the company stated that partnering would continue to be an important component of its expansion strategy.

Worthington also entered into discussions with U.S. Steel about a possible joint venture to establish a minimill to produce flat-rolled steel and hot-rolled coil, which could lower Worthington's costs and lessen its dependence on suppliers by supplying some of the steel for its processing plants. After extensive investigation, however, the company resolved instead to purchase steel from a minimill being built in Ohio by the North Star and BHP steel companies. In May 1995 Worthington announced plans to build a $65 million steel processing plant near the mill, with projected output of $250 million.

Seeking to expand into businesses related to its core lines, in early 1996 Worthington announced that it would purchase Dietrich Industries, a premier producer of metal framing products, for $146 million in cash and the assumption of $30 million in debt. In 1997 Worthington closed a deal for the Gerstenslager Company, a leading producer of automotive body panels, for $113 million. The acquisition was expected to add $120 million to Worthington's top line. Worthington established a presence in South America by investing $10 million for a majority stake in a Brazilian maker of propane tanks. The company also continued to invest heavily in its domestic operations, building plants in Alabama and Michigan and improving existing facilities in Pennsylvania and Ohio.

Worthington's revenues and earnings have increased steadily over the years. In its first year as a public company, the fiscal year ended May 1969, Worthington reported sales of $21 million and net earnings of $460,000. Sales then rose uninterrupted through the fiscal year ended May 1989, when they reached $939 million. After recessionary setbacks during the next two years, sales recovered in fiscal 1992 and grew steadily from $1.1 billion in the year ending May 1993 to $1.5 billion in 1995. After a flat year in 1996, revenues climbed to a record $1.9 billion in 1997. Earnings followed a similar path, setting new records every year except 1982 until they encountered the slowdowns of 1990 and 1991. Earnings improved in 1992, reached $66 million the following year, and grew to $116 million by 1995. After dropping 22% in 1996, earnings improved slightly the following year but remained significantly below their 1995 high at $93 million. The value of Worthington stock, which was first offered to the public in 1968, has also grown steadily. As the result of dividends and splits, 100 shares purchased in 1968 had grown to 13,314 shares by 1997.

Founder and CEO John H. McConnell credited much of his success to the depth and competence of Worthington management, most of which was developed internally. Donald H. Malenick, who started as a slitting machine operator in 1959 and worked his way up through the ranks, became president and chief operating officer in 1976.

The founder's son, John P. McConnell, came to the company in 1975, and in 1992 he assumed the position of vice-chairman, with responsibility for development and oversight of emerging business opportunities. Early the following year, he succeeded his father as CEO of Worthington, with the elder McConnell remaining on as chairman of the board. Steeped in his father's strategic and managerial philosophies, John P. McConnell vowed to continue to build on his father's successes. He noted that he expected Worthington's earnings and revenues to grow at an annual rate of 15 percent, and that he planned to maintain Worthington's unique corporate culture.

Observers credit that corporate culture with much of Worthington's success. Anchored by the company's "golden rule" and strong emphasis on motivation, Worthington stresses a commitment to communication&mdashcessibility to all management from the CEO down is axiomatic--and recognition of good work, both financially and with other forms of encouragement. John H. McConnell admitted to having little use for unions, regarding them as the result of managements that fail to meet workers' needs; by contrast, Worthington was built on a philosophy of partnership and teamwork extending to all employees.

From its inception, Worthington regularly paid all workers cash bonuses based on tonnage shipped. In 1966, to stress the importance of customer service and quell any temptation to sacrifice quality in order to rush shipments, the incentive basis was shifted to pretax profits. At the same time the production line workers were put on salary, just like office employees. The incentive plan provided workers with 40 percent or more of their annual pay. Under a separate plan, the incentive portion for managers often tops 60 percent.

Worthington has spent heavily on state-of-the-art plants and equipment. It was selected as one of five companies with "Factories that Shine" in a 1989 Fortune article on efforts to restore America's manufacturing leadership. Equally significant is Worthington's extensive customer service work. The company continues to be on the lookout for a wide variety of potential projects that can bring business to Worthington and improvement to the customer's operations. Plant managers spend as much as 25 percent of their time in the field. Sales personnel must first spend a few months working in the plants, so that they bring firsthand knowledge of products and operations to their talks with customers. Worthington metallurgists regularly explore with customers more efficient and cost-effective means to meet their needs. For General Motors--Worthington's biggest customer--they devised a modified automobile seat adjustment track that resulted in savings of more than ten percent. They also suggested a change in steel composition that enabled Union Fork & Hoe Company to price its rakes more competitively, even though it meant less revenue for Worthington.

With its salary and incentive system, Worthington does not use time clocks or inspectors&mdash--ployees carefully inspect their own work. There can be considerable peer pressure on nonperformers, and new employees have to prove themselves: an employee council of nonsupervisory workers must vote to admit them to the salary plan. The team approach is credited for superior production with a rejection rate of less than one percent, compared to three to five percent for the industry. Employee turnover is exceptionally low, as is absenteeism: at 1.5 percent, it is just half of the industry average.

Worthington also offers a high degree of job security. It has avoided layoffs during major downturns by shifting people to other parts of the company, or assigning tasks like painting, sweeping, and repairing equipment. The incentive and salary plans are not extended to the few unionized plants Worthington picked up in acquisitions; in several such plants, employees voted to decertify the unions in order to gain the team benefits.

The effectiveness of Worthington's employee policies is repeatedly cited by commentators and financial analysts. Worthington won a spot among The 100 Best Companies to Work for in America, the 1985 compendium by Levering, Moskowitz, and Katz, and kept its place in the book's 1993 revision. Furthermore, it became one of the largest stockholdings among mutual funds requiring a positive record on environment, business ethics, employee relations, and community relations, in addition to financial performance.

Commentators fully expect Worthington to maintain its stellar performance in the near future, citing the McConnells' business savvy, the depth of their management team, the company's low level of debt, and its position in the market--strategically placed as it is between the large integrated mills that produce steel and the precision demands of end-users. In addition, expected consolidation in the steel processing industry could benefit companies like Worthington that have strong balance sheets and deep pockets, allowing them to grow quickly by acquiring smaller competitors at bargain prices. John P. McConnell vows that Worthington will stay the course established over the past 40 years, posting steady growth, maintaining profitability, and expanding aggressively into new markets--while, of course, holding steadfastly to the Golden Rule.

Principal Subsidiaries: The Worthington Steel Company; Worthington Cylinder Corporation; Dietrich Industries, Inc.; The Gerstenslager Company; Worthington Custom Plastics, Inc.; Worthington Precision Metals, Inc.; Buckeye Steel Castings Company; Worthington Machine Technology; I.H. Schlezinger, Inc.